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Spurgeon v. Leleux

United States District Court, W.D. Louisiana, Lafayette Division

January 8, 2019





         This is a breach of contract case brought by Plaintiff Dennis R. Spurgeon (“Spurgeon”) against Defendants Calvin J. LeLeux; Swift Group, LLC; ICS Nett, Inc.; Jeffrey LeLeux; Shehraze Shah; Khurram Shah; Swiftships Shipbuilders, LLC; Swiftships, LLC; and Swiftships Group, Inc.

         This matter came for trial before the Court on November 5 and 6, 2018.

         The Court hereby enters the following findings of fact and conclusions of law. To the extent that any finding of fact constitutes a conclusion of law, the Court hereby adopts it as such, and to the extent that any conclusion of law constitutes a finding of fact, the Court hereby adopts it as such.


         In 1985, Spurgeon and others purchased a boat building company known as “Swiftships” located in Morgan City, Louisiana. In July 1999, the company was reorganized into Swift Group, LLC, a Louisiana limited liability company, which became the holding company and Swiftships Shipbuilders, LLC, also a Louisiana limited liability company, which became the operating company. The holding company, which owned 100% of the operating company, was owned 40% by Spurgeon, 40% by Bob Ness (“Ness”) and 20% by Calvin LeLeux. Land holdings were placed in separate companies also owned 100% by the holding company.

         A. The BLX Loan

         The operating company, Swiftships Shipbuilders, LLC, manufactured military patrol boats for the U.S. Navy and other countries, and supply boats and crew boats for the oil and gas industry. In June 2000, the owners determined that the facilities needed to be upgraded. A loan in the amount of $5 million was obtained from BLC Commercial Capital (subsequently BLX). Each member of the company, including Spurgeon, was required to personally guarantee the loan up to the percentage of their ownership. Accordingly, Spurgeon signed a personal guarantee in the amount of 40% of the total loan amount.

         In a commitment letter signed prior to the loan agreement, it was agreed that any guarantor who sold his interest in Swift Group, LLC, would be released as a guarantor. Additionally, the letter provided that any entity purchasing more than 20% interest in the company would be required to guaranty the loan up to that entity's percentage ownership.

         B. Sale of Spurgeon's Interest

         On September 20, 2002, an agreement was executed whereby Spurgeon sold his 40% interest in Swift Group, LLC, to the remaining members, Ness and Calvin LeLeux. By virtue of this sale, Ness and Calvin LeLeux were to each own a 50% interest. The consideration to be paid Spurgeon for the sale of his interest was to come from the liquidation of the company's boatyards in Mississippi and Texas. Specifically, Spurgeon was to get one-third (1/3) of the proceeds from those two sales.

         C. Spurgeon Learns of Default of Sale Agreement

         In 2007, Spurgeon learned that the Mississippi property had been sold in 2004. He contacted Calvin LeLeux to ask why he had not been paid his one-third (1/3). Calvin LeLeux sent Spurgeon an accounting of the sale of the Mississippi property on April 2, 2007. In that accounting, Calvin LeLeux acknowledged that Swiftships Shipbuilders, LLC, was indebted to Spurgeon in accordance with the sale agreement in the amount of $550, 000 which represented the portion of the sale of the Mississippi property that should have been paid to Spurgeon in 2004. Calvin LeLeux assured Spurgeon that he had a plan in place to take care of the indebtedness.

         D. Default of BLX Loan

         On December 15, 2008, BLX filed suit on the outstanding note. Spurgeon was not advised that the suit had been filed, nor was he served with the lawsuit. Unbeknownst to Spurgeon, and without his consent, Faisal Gill, counsel for Swift Group, LLC, and its subsidiaries, filed a formal response on behalf of Spurgeon to the BLX litigation on March 30, 2009.

         Spurgeon is a graduate of the United States Naval Academy with a dual major in marine engineering and nuclear science, and holds two graduate degrees from the Massachusetts Institute of Technology in nuclear energy. He was nominated and confirmed by the Senate to be the Assistant Secretary for Nuclear Energy in the George W. Bush administration. He learned he had been sued by accident while Googling his own name in preparation for giving talks after he had left the Bush administration. Upon learning of the lawsuit, he contacted Calvin LeLeux to find out what was going on. Calvin LeLeux assured Spurgeon that he would take care of it.

         Spurgeon was subsequently asked to agree to a forbearance agreement and to a consent judgment in favor of BLX. Spurgeon ultimately agreed that a consent judgment could be entered against him personally if he was given an “iron-clad” hold harmless agreement by the Swiftships related entities. On December 1, 2010, a Release and Indemnity Agreement was executed in favor of Spurgeon by Swift Group, LLC; Swiftships Shipbuilders, LLC; Swiftships Technology, LLC; Land & Industrial Asset Management, LLC; and Champion Shipyard, “as well as their representatives, agents, employees, servants, officers, directors, stockholders, members, insureds, insurers, successors, assigns, parents, subsidiaries, affiliates, attorneys and all other persons, firms or corporations in privity therewith . . . .” [See Exhibit 5, Release & Indemnity Agreement dated December 1, 2010]. Faisal Gill executed the document on behalf of the named parties and affixed an affidavit wherein he attested that he had been authorized to execute the document on behalf of the parties as counsel. A consent judgment was entered in favor of BLX and against Spurgeon, Calvin LeLeux, and the Swiftships-related entities.

         E. LeLeux Takes On Lutfe Hassan d/b/a Apex Worldwide as Partner

         During this period, press releases and publicly available information indicated that Swiftships Shipbuilders, LLC, had been awarded approximately $400 million in U.S. Navy shipbuilding contracts. In 2008, 51% of Swift Group, LLC, including Ness's 50% interest, was purchased by Apex Worldwide Consulting (“Apex”), with Calvin LeLeux retaining a 49% interest. On August 19, 2009, Calvin LeLeux transferred an additional 10% of his membership interest to Apex, resulting in Apex owning a 61% interest and Calvin LeLeux owning a 39% interest.

         The sole owner of Apex was Lutfi Hassan (“Hassan”). An audit prepared by Price, Waterhouse, Cooper, C.P.A.s, completed on November 11, 2011, revealed that Hassan, acting through Apex, had moved $30 million cash from Swiftships Shipbuilders, LLC, to a related company in Dubai, known as Swiftships Development, LLC. At trial, Calvin LeLeux described this transfer as “shameful” but asserted he was powerless to prevent it, as a minority stockholder. However, he admitted Swiftships Development, LLC, was also owned in part by himself. According to Calvin LeLeux, based on this transfer of funds, and other financial problems caused by Hassan, the U.S. Navy wanted Hassan out of the company. As Hassan was moved out, Calvin LeLeux acquired 100% of Swift Group, LLC, by December of 2011.

         F. The Settlement Agreement and Its Breach

         Meanwhile, after learning of the $400 million in Navy ship-building contracts, Spurgeon became concerned as to why he had not been paid the money owed to him. In May of 2011, Spurgeon; Calvin LeLeux; Swift Group, LLC; Swiftships Shipbuilders, LLC; Swiftships Freeport, Inc; and Champion Shipyards, Inc., entered into a settlement agreement with reference to the consideration that was supposed to have been paid to Spurgeon as a result of the sale of his ownership interest in the company back in 2002, in addition to other undisputed monies owed Spurgeon.

         Pursuant to the settlement agreement, Spurgeon was allowed to cash a check dated March 18, 2011, made payable to him in the amount of $308, 993.97. It was further agreed that Spurgeon would be paid $200, 000 on July 5, 2011; $300, 000 on August 5, 2011; $500, 000 on September 5, 2011; plus a minimum of $600, 000 for his interest in the Texas property.

         Spurgeon cashed the check for $308, 993.97 and did receive and cash a check for $200, 000 on or about July 5, 2011. However, it is undisputed that the remaining $1.4 million that is owed Spurgeon under the agreement has not been paid.

         The settlement agreement contains a provision that permits Spurgeon to regain 40% interest in Swift Group, LLC, if the contract is breached.

         On October 11, 2011, Spurgeon instituted this litigation against Swift Group, LLC, and Calvin LeLeux for breach of the contract. Spurgeon requested that the transfer of his 40% membership interest in Swift Group, LLC, be dissolved, that the defendants be ordered to deliver a 40% membership interest in Swift Group, LLC, back to him, and that he be awarded damages.

         On December 6, 2011, Spurgeon filed a motion for judgment on the pleadings. In response, on January 9, 2012, Calvin LeLeux filed an opposition stating that he no longer owned any interest in Swift Group, LLC, and, therefore, the return of Spurgeon's 40% interest was an unavailable remedy. Based in part on that representation, the Court denied the motion.

         In his testimony at trial, Calvin LeLeux admitted that his representation that he no longer owned any interest at the time of the motion for judgment on the pleadings was not true, that he actually owned 100% of the company then, and that he had been negotiating an agreement for a new partner, ICS Marine, which, at the time, was a parts supplier to Swiftships Shipbuilders, LLC.

         G. Purchase by ICS Marine

         An agreement was reached whereby ICS Marine purchased 50% ownership of Swift Group, LLC, in exchange for a waiver of $14 million owed by Swiftships Shipbuilders, LLC, to ICS Marine in accounts receivable, and a $4 million equity payment.

         ICS Marine was owned by Khurram Shah, who asked his twin brother, Shehraze Shah, to handle the transaction whereby ICS Marine would acquire 50% interest in Swift Group, LLC. ICS Marine became a 50% owner in 2012, purchasing the 50% interest from Calvin LeLeux, who was the 100% owner.

         H. The Asset Purchase Agreements

         On January 1, 2014, there was a complete corporate restructure of the Swiftships-related companies.

         1. The Asset Purchase Agreement Between the Old Operating Company and the New Operating Company

         Swiftships Shipbuilders, LLC, the old operating company, entered into an Asset Purchase Agreement with Swiftships, LLC, the new operating company, dated January 1, 2014. Swiftships, LLC, is a Virginia limited liability company which was actually created on January 2, 2014, a day after this Asset Purchase Agreement became effective. This agreement purported to transfer all of the assets of Swiftships Shipbuilders, LLC, to Swiftships, LLC. The agreement indicated that Swiftships, LLC was acquiring approximately $30 million in assets in exchange for assuming approximately $30 million in liabilities. However, no cash changed hands, and the debts purportedly assumed included almost $28 million in future costs to be acquired to complete the existing ship-building contracts, which would be reimbursed by the Navy.

         Although the new operating company acquired all of the assets of the old operating company, the agreement stated that the new operating company was assuming only some of the liabilities of the old operating company, including those debts that were necessary to continue the outstanding contracts. The debt owed Spurgeon was not listed as one being assumed by the new operating company. Although the Defendants indicate that the BLX debt was assumed, that debt is not listed in the agreement.

         The operations of the old operating company, Swiftships Shipbuilders, LLC, continued after the agreement, through the new operating company, Swiftships, LLC. The boat building continued at the same location, with the same telephone number, the same website, using the ...

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